Why Most Governments Can’t Solve Their Societal Problems

Why Most Governments Can’t Solve Their Societal Problems

November 8, 2020 0 By aure

Tl;dr: most governments focus on the consequences of societal problems instead of focusing on fixing the cause.

Not all governments suck. Throughout history, some governments, and particularly the men and women that directed them, did remarkable work.

Lincoln in the US, Gerhard Schröder in Germany, Lee Kuan Yew in Singapore, Deng Xiaoping in China, Abiy Ahmed in Ethiopia, Lula in Brazil, Gorbatchev in the USSR, Margaret Thatcher in the UK, Ibn Saud in Saudi Arabia, and Tito in Yugoslavia are only a small sample of great statesmen and women.

Great leaders, however, only make up for a minority. While I remain persuaded that the former and current political elites are composed of smart and talented people, empirical results outline that the decisions they make…suck.

In this article, I outline why I believe bad governance is not a matter of policy quality, but of asking the wrong questions when solving a problem.

Through 3 case studies, we’ll see how leaders merely focus on fixing the consequences of societal problems instead of focusing on the causes.

Most Leaders Don’t Understand How the Economy Works 

Each year, governments are required to make a budget to spend for the subsequent year.

Each year, governments wonder where to look for money to come up with to complete their budget.

Each year, we discover governments don’t understand how the economy works.

Governments’ budget is made out of taxes. Taxes are deducted from economic production or GDP. When citizens produce goods or services and sell them, they owe the government taxes.

The bigger the value of produced goods and services is, the bigger the economy will be. The bigger the economy will be, the more taxes the government will receive.

As such, when governments ask where to find money to complete the budget, they are not asking the right question.

The right question is how can we increase the economy’s output? 

Economics teaches us that taxes are obstacles to value creation. When you sell a good for €100 and must subsequently pay 21% of VAT on it, you’ll have to sell your good for €121 instead.

You’ll have fewer people buying at €121 than at €100, which ends up impacting the total value of produced goods. When taxes are high, people make less money, businesses struggle to survive and more people sign up for unemployment benefits, which increases the state’s budget.

This is what happened in Greece in 2012. The debt of the country had become so huge that the creditors (the Troika) had demanded Greece to pay it fast. As such, taxes had spiked in Greece, which strangled many businesses. When it became impossible to refund the debt they had contracted, they closed.

The tax burden had become so heavy on Greece that it killed the little economy that they had. The initial efforts to refund the debt became harder than they would have been, had the tax rate remained unchanged.

When governments need more money for their budget, it’s not an increase in taxes that they should be looking at. They should seek the means to increase productivity.

When the economy grows and becomes more productive, people become richer and the government receives more taxes. Since people are richer, they don’t require the help of the state as much which decreases the state budget.

Since the government doesn’t need as much taxes, it can decrease the rate to increase productivity and wealth creation.

The cycle repeats itself in a virtuous circle.

When the political elites ask “where to take the money from”, they do not ask the right question and end up as a result, with an ill-suited solution. The correct one would be “how can we make more money?”

This leads to the establishment of policies that negatively impact the economy and the country.

Empirically, low-tax countries are on all levels, in better shape than high-tax countries. Singapore, Luxembourg, the state of Texas, Switzerland, Liechtenstein, and Estonia perform better. The level of employment is higher, and the level of poverty is lower.

Contrariwise, countries with high tax rates such as Comoros, Puerto Rico, Suriname, Chad, or the DRC don’t nearly perform as well.

Some estimate that low-taxed countries “steal” economic activity due to their low taxes.

It is a huge misunderstanding.

Low-taxed countries merely enable economic activity to develop because they are low-taxed.

You’ll have more chances to have a successful business if you need to pay 10% of tax than 33%.

As such, high-taxed places prevent economic activity from developing because the cost to do so is too high.

Had all countries a low tax rate, entrepreneurs wouldn’t have to move to be able to do business.

They’d stay home, and create value where they are.

Most Leaders Don’t Understand How Healthcare Works

Health is an important topic because it’s an important beneficiary of the state budget.

When governments look at decreasing healthcare costs, they look at increasing the price of the insurance people pay; they look at decreasing the value of the refund they offer citizens; they look at lowering HR expenses.

None of this can work.

Solving the healthcare crisis is not about decreasing cost – it’s about having fewer sick people. 

Instead of looking at decreasing healthcare costs, governments should focus on keeping their citizens healthy.

Healthy citizens are more productive which makes them bringing in more taxes while subsequently being cheaper for the state.

The biggest expense that healthcare services must deal with is by far heart diseases, diabetes, and obesity, three health issues caused by an unhealthy lifestyle.

As such, governments should establish incentives for their citizens to do sport, eat healthily, and sleep well.

Governments can finance sports clubs, refund sport memberships and I’m even in favor of a plan paying people to lose weight.

I like to imagine obese citizens receiving about 25 euros for every kilo they shed off. This investment would end up being much lighter for the state than surgery or insulin would be at a later stage when they get seriously sick.

I like to imagine a discriminating tax on food.

Processed foods, fried food, and high-sugar foods would be taxed to finance the parts of the healthcare system dealing with people eating too much sugar. Healthy foods (vegetables, fruits, dairy, and meat) could benefit from a complete tax break to push citizens towards health and away from garbage.

The healthcare system as currently designed is not a healthcare system.

It is a sick care system. It is a system that takes care of people once they are sick, instead of preventing them from becoming sick in the first place.

It is only when we will take measures to improve citizens’ health (instead of improving their treatments) that the healthcare problem will be fixed.

If there are no sick people, there is no need for a hospital.

Most Leaders Don’t Understand How Violence Works

The key to decreasing societal violence is not about decreasing violence. It’s about establishing peace.

There have been considerable efforts this past decade to understand what made societies relapse into a civil war or not.

The findings outlined that violence is inversely correlated to the concept of human security. Human security describes the extent to which humans’ needs (such as food and shelter) are met and life opportunities (education, job) are available in a given society.

Lack of human security has been shown to be an important catalyst for violence.

In prosperous societies, violence is most of the time linked to a lack of financial or social opportunities.

Since violence has roots, it should not be repressed, but prevented. 

However, the current system in place deals with violence in a repressive manner. Those that create violence are locked in in one of the most violent places in society: prisons.

Far from improving criminals’ fate, prison increases the chance of recidivism due to discrimination, stigmatization, lack of aftercare services or reintegration support programs, familial, structural, substance abuse, peer influence, etc.

Prison, and the judiciary system in general, deal with the consequences of violence as it should but does not prevent it.

Working on societal violence is a long and tedious process, that includes various institutions such as schools, the unemployment office, law enforcement forces, and social services.

While this is outside the scope of this article, it should also be taken into consideration that violence is a masculine issue. Policies dealing with violence should, as a result, predominantly focus on men.

To summarize, it is by investing in social sectors and guaranteeing human security that governments will manage to decrease societal violence in the long run.

The Bottom Line

Current political solutions to societal problems don’t work because they don’t address the root of the problems. They address their consequences.

As such, bad policy is not a consequence of incompetence or stupidity, often outlined in mainstream media.

Bad policy is first and foremost a consequence of not asking the right questions. Policies, as a result, do not deal with societal problems efficiently.

Sustainable solutions to societal problems require that the political class operate a shift in their issue tackling. It is only when solutions will focus on the roots of the issues and not on their consequences, that society will manage to efficiently and sustainably tackle the obstacles laid on the path of its development.

Picture credits: Photo by Jonathan Kho on Unsplash